The Call for Private Company StandardsPosted: September 11, 2017
Several years ago the call for separate private company GAAP was loud and rancorous. The FASB was accused of too much focus on public company issues that resulted in financial statements which were complicated, or worse, meaningless to the users of private company reporting. The roar got so loud that a blue ribbon panel was formed and recommendations were made to have a separate board for private companies much like the GASB for governmental organization. The path was set for the FASB to be relegated to public company issues only.
Instead, the Financial Accounting Foundation (FAF) which oversees the FASB and the GASB decided to take a different route. The Private Company Council (PCC) was formed, but instead of having standard setting authority, it could only make recommendations to the FASB, much like the EITF. Many thought that the PCC was destined to fail because it seemed it had little more authority than a predecessor organization known as the Private Company Financial Reporting Committee (PCFRC), and the FASB had generally ignored any recommendations or suggestions from the PCFRC. There were some critical differences including designated staff support for the PCC and a requirement that the FASB actually vote on formal PCC recommendations including an explanation of why they didn’t vote in favor of such recommendations, if the vote came to that result. Still, it was far short of a separate standard setting board, and many thought that a FASB primarily funded by a public company levy (as the result of the Sarbanes-Oxley Act) would continue to focus on those who provided the money.
It has now been five years since the PCC was formed, and I would have to say that the PCC has been a great success. They made a big splash addressing a handful of issues that private companies had complained about for years, but the real story of success is the day to day council the PCC is now providing to the FASB in its standard setting work. You can see its impact on almost every new standard issued, from private company specific issues addressed in the share-based compensation standard, that went into effect this year, to the issues addressed in a consolidation standard update proposed a couple of months ago. There is a great article on the subject that can be found here.
Maybe the FASB got religion and realized they had to change because they finally saw how serious the profession had become. Maybe the more formal recommendation and rejection process had an impact on their thinking. Maybe the advocates for differential standards realized that, in the end, the big issues were few in number and, once they were addressed, felt like they could live with a mostly single set of GAAP. Whatever the reasons, I’m happy we all came together as a profession to help create a better answer that works for everyone.
Thank you FAF; thank you FASB; and thank you and happy birthday PCC.